How to Choose a Financial Planner

How to Choose a Financial Planner 

You spend a lifetime working hard and saving for goals like buying a house, retiring and sending your kids to college. Most experts recommend hiring a financial adviser to help you reach those goals, yet how do you find someone you can trust?

Financial planners advise clients on how best to save, invest, and grow their money. They can help you tackle a specific financial goals such as readying yourself to buy a house or give you a macro view of your money and the interplay of your various assets. Some specialize in retirement or estate planning, while some others consult on a range of financial matters.

Don’t confuse planners with stockbrokers the market mavens people call to trade stocks. Financial planners also differ from accountants who can help you lower your tax bill, insurance agents who might lure you in with complicated life insurance policies, or the person at your local Fidelity office urging you to buy mutual funds.

Stick with the professionals.

Check the certificate. Anyone can hang out a shingle saying they're a financial planner or a wealth manager. Stick with someone who has a well-known designation such Certified Financial Planner or Personal Financial Specialist. Whatever the designation, be sure to understand what type of education and enrichment it required. Don't be afraid to ask them to explain the duck soup of letters after their names, and where they got their training.

We all have different needs.

Know what you need. Not all planners offer comprehensive advice. Some focus on retirement, while others go whole-hog and cover everything from taxes to estate planning. Decide what you need and expect from your adviser.

Know what they actually do. Some financial advisers are actually tax accountants or insurance salesmen who decide to offer general investment advice to broaden their businesses. Consider their other incentives when they start to sell you a new tax strategy or insurance policy.

Interview, interview, interview. When hiring a planner, interview at least three pros. Don't shy away from asking them for referrals from clients and don't fall in love with the first one you meet even if he was recommended by your best friend.

Understand how your adviser gets paid.

Find the fees. Some advisers are called "fee-only" financial planners because they don't receive commissions for any of the products they sell. Commission-based planners might not charge clients for office visits, but they receive compensation from the companies whose products they sell. Some financial planners have a hybrid fee structure. So-called "fee-based" planners can receive payments for some of the investment products they sell from the companies that created them, but most of their income derives from the fees they charge their clients. True fee-only planners are a relatively rare breed, so be sure to ask how an adviser is paid.

Understand the products. Ask about the breadth of products that the planner sells and if the compensation is different, say, for insurance products versus investments. Similarly, be wary of advisers who tend to push a narrow selection of products, for example, if they keep steering you toward one mutual fund family. No fund company offers the best funds in every style of investing.

Running a background check on your planner. Start with these two questions: Have you ever been convicted of a crime? Has any regulatory body or investment-industry group ever put you under investigation, even if you weren't found guilty or responsible? Then ask for references of current clients whose goals and finances match yours.

What not to do.

Don't jump the gun. Just because you are offered a product or plan by the adviser you choose, doesn't mean you should buy the first investment product that the adviser offers. Advising is part of a conversation, so be sure to talk it out without asking about alternatives.

Don't be wowed by performance. Fancy charts and presentations play up an investment's performance should be understood for the market or time period. The investment may actually have under-performed, but still makes for a good chart!

Don't forget to check in. Be sure to set regular meetings with your adviser to make sure that your plan still fits with your goals. Regular, for some people, may mean just once a year at tax time; for others, quarterly is more appropriate.